One way of looking at this is by measuring a bank’s capital as a percentage of its total assets. (Conservative banks have a high percentage.)

Let’s say a bank has $1000 in assets like cash and loans, and $200 in liabilities (customer deposits).

This means that the bank has $800 in capital, which constitutes 80% of its total assets.

In other words, the value of the bank’s assets can fall by 80%, and the bank would still be able to repay its depositors.

This is a huge margin of safety that is unfortunately almost unheard of in banking.

Right before the crisis, in fact, Lehman Brother’s capital was just 3% of its total assets.

And that leads me to central banks.

Just like regular banks and businesses, central banks also have assets and liabilities.

In the U.S., the Federal Reserve’s assets total $4.486 trillion, including more than $2 TRILLION in U.S. government debt.

The Fed also has total capital (i.e. net worth) of $39.5 billion.

That sounds like a lot. Until you realize that it constitutes just 0.88% of its total assets. Not even 1%!

This is a tiny, almost nonexistent level of capital at the Federal Reserve.

Put another way, the issuer of the United States dollar, the most widely used currency on the planet, and the central bank of the largest economy in the world, has almost no margin of safety.

This puts the entire global financial system at a tremendous level of risk.

Central banks can and do go bankrupt. It happened most notably in Iceland back in 2008, causing an epic currency crisis in that country.

So running the Fed’s balance sheet down to the nub like this is not exactly a consequence-free course of action.

But what’s really astonishing about all of this is how quickly the Fed’s balance sheet deteriorated. And why.

Just two weeks ago, the Fed’s total capital was nearly $59 billion. And even that wasn’t very much given the size of its balance sheet.

Today it’s $39.5. This is an incredible 33% drop in just two weeks!

Imagine your net worth collapsing by 33% in two weeks; it would probably be a huge personal crisis. Yet the Fed seems completely cool about it.

I did some digging and found out why this happened.

It turns out that Congress and the President passed a law last month called the Fixing America’s Surface Transportation (FAST) Act.

We’ve talked about this one before– the FAST Act is supposed to provide funding for America’s highway system.

But one of the provisions is that a U.S. citizen can have his passport revoked if the government believes in its sole discretion that he owes too much tax. Crazy.

And, buried deep within the nearly 500 pages of legislation is a neat little section demanding that Federal Reserve bank surpluses above a certain amount must be turned over to the United States Department of Treasury.

In other words, the U.S. government is so broke that they’re now confiscating assets from the Fed, putting the entire global financial system at even more risk.

It’s genius!

You just can’t make this stuff up. It’s so absurd it would be comical if it weren’t true.

So, yes, it should be completely obvious by now that there is a tremendous amount of risk in the system.

Governments are completely bankrupt. And even central banks now are being pushed into insolvency by the bankrupt governments they support.

This is not a story that has a happy ending. And whether the consequences arise today, tomorrow, or five years from now is irrelevant.

This is a major risk. And for any thinking, rational person paying attention, it’s imperative to have a Plan B.

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

Multiple times every week, we help over 100,000 Sovereign Man subscribers who are taking their family’s liberty and prosperity into their own hands with our free publication, Notes From The Field.

Activate your free subscription today, and get fresh intelligence delivered securely to your inbox as we travel the world discovering the biggest opportunities available to smart, enterprising individuals like you.

This article was published on The Sovereignmanon January 8, 2016. Reposted with permission.

Please let others know they too can trust SurvivalBlog for the most reliable and practical survival information by voting for SurvivalBlog on topprepperwebsites.com

James Wesley Rawles

James Wesley, Rawles (JWR) is Founder and Senior Editor of SurvivalBlog, the original prepping /survival blog for when the Schumer Hits The Fan (SHTF). He began SurvivalBlog in 2005. It now reaches more than 320,000 unique visitors weekly.
JWR is a journalist, technical writer, and novelist. His survivalist novel Patriots: Surviving the Coming Collapse, is a modern classic that reached #3 on the New York Times bestsellers list. Two of his other novels have also been best New York Times bestsellers.
Jim is the originator of the American Redoubt movement and a frequent talk show guest on shows such as Alex Jones. He is also a retreat consultant specializing in off-grid living, rural relocation, and survival preparedness.

Hugh James Latimer

Hugh James Latimer (HJL) is the Managing Editor of SurvivalBlog, the original blog for prepping and survival for when SHTF, where he manages the blog's day-to-day operations, applying his diverse technical, management, and editorial expertise.
HJL earned college degrees in engineering, metallurgy, and education and has worked as Technical Editor for five international technical journals and as an engineer for Sandia National Laboratories. His deep scientific background ranges from aerospace engineering to systems administration and owning his own technology-intensive business.
HJL is a firefighter/EMT, and Ham radio operator. He's a Libertarian, an Eagle Scout, and most importantly a devoted follower of Jesus and the Bible.

Support SurvivalBlog

A $3/month subscription. That's only $0.10/day for some of the finest Survival/Prepping content around!
----
A One-Time Donation (You choose the amount):
----
A $5 Dollar bill, a €5 Euro bill, a few Pre-1965 silver dimes, or a booklet of "Forever" U.S. postage stamps sent in the mail also works! :-)
We greatly appreciate your support to help keep this blog up and running! Our mail forwarding address is: